Category : Various Text files
Archive   : NAFTA.ZIP
Filename : ENERGY.06

Chapter Six

Energy and Basic Petrochemicals



Article 601: Principles

1. The Parties confirm their full respect for their
Constitutions.

2. The Parties recognize that it is desirable to strengthen the
important role that trade in energy and basic petrochemical goods
play in the North American region and to enhance this role
through sustained and gradual liberalization.

3. The Parties recognize the importance of having viable and
internationally competitive energy and petrochemical sectors to
further their individual national interests.


Article 602: Scope and Coverage

1. This Chapter applies to measures relating to energy and
basic petrochemical goods originating in the territories of the
Parties and to measures relating to investment and services
associated with such energy and basic petrochemical goods, as set
forth in this Chapter.

2. For purposes of this Chapter, energy and basic petrochemical
goods refer to those goods classified under the Harmonized System
as:

(a) Chapter 27 (excluding: subheadings 2707.10, 2707.20,
2707.30, 2707.40, 2707.60, 2707.91, 2707.99 (except
solvent naphtha, rubber extender oils and carbon black
feedstocks), and in subheading 2710.00 (only normal
paraffin mixtures in the range of C9 to C15), and in
heading 2711 (only ethylene, propylene, butylene and
butadiene, in purities over 50 percent));

(b) subheading 2612.10;

(c) subheadings 2844.10 through 2844.50 (only with respect
to uranium compounds classified under those
subheadings);

(d) subheading 2845.10;

(e) subheading: 2901.10 (ethane, butanes, pentanes,
hexanes, and heptanes only);

3. Except as otherwise specified in Annex 602.3, energy and
petrochemical goods and activities shall be governed by the
provisions of this Agreement.


Article 603: Import and Export Restrictions

1. Subject to the further rights and obligations of this
Agreement, the Parties incorporate the provisions of the General
Agreement on Tariffs and Trade (GATT), with respect to
prohibitions or restrictions on trade in energy and basic
petrochemical goods. The Parties agree that this language does
not incorporate their respective protocols of provisional
application to the GATT.

2. The Parties understand that the provisions of the GATT
incorporated in paragraph 1 prohibit, in any circumstances in
which any other form of quantitative restriction is prohibited,
minimum or maximum export-price requirements and, except as
permitted in enforcement of countervailing and antidumping orders
and undertakings, minimum or maximum import-price requirements.

3. In circumstances where a Party imposes a restriction on
importation from or exportation to a non-Party of an energy or
basic petrochemical good, nothing in this Agreement shall be
construed to prevent the Party from:

(a) limiting or prohibiting the importation from the
territory of any Party of such energy or basic
petrochemical good of the non-Party; or

(b) requiring as a condition of export of such energy or
basic petrochemical good of the Party to the territory
of any other Party that the good be consumed within the
territory of the other Party.

4. In the event that a Party imposes a restriction on imports
of an energy or basic petrochemical good from non-Party
countries, the Parties, upon request of any Party, shall consult
with a view to avoiding undue interference with or distortion of
pricing, marketing and distribution arrangements in another
Party.

5. Parties may administer a system of import and export
licensing for energy and basic petrochemical goods provided that
such system is operated in a manner consistent with the
provisions of this Agreement, including paragraph 1 and Article
1502 (Monopolies and State Enterprises).

6. In addition, the Parties recognize the provisions of
Annex 603.6.


Article 604: Export Taxes

No Party shall maintain or introduce any tax, duty, or
charge on the export of any energy or basic petrochemical good to
the territory of any other Party, unless such tax, duty, or
charge is also maintained or introduced on such energy or basic
petrochemical good when destined for domestic consumption.


Article 605: Other Export Measures

A Party may maintain or introduce a restriction otherwise
justified under the provisions of Articles XI:2(a) and XX(g), (i)
and (j) of the GATT with respect to the export of an energy or
basic petrochemical good to the territory of another Party, only
if:

(a) the restriction does not reduce the proportion of the
total export shipments of a specific energy or basic
petrochemical good made available to such other Party
relative to the total supply of that good of the Party
maintaining the restriction as compared to the
proportion prevailing in the most recent 36-month
period for which data are available prior to the
imposition of the measure, or in such other
representative period on which the Parties involved may
agree;

(b) the Party does not impose a higher price for exports of
an energy or basic petrochemical good to such other
Party than the price charged for such energy good when
consumed domestically, by means of any measure such as
licenses, fees, taxation and minimum price
requirements. The foregoing provision does not apply
to a higher price which may result from a measure taken
pursuant to subparagraph (a) that only restricts the
volume of exports; and

(c) the restriction does not require the disruption of
normal channels of supply to such other Party or normal
proportions among specific energy or basic
petrochemical goods supplied to the other Party such
as, for example, between crude oil and refined products
and among different categories of crude oil and of
refined products.


Article 606: Energy Regulatory Measures

1. The Parties recognize that energy regulatory measures are
subject to the disciplines of:

(a) national treatment, as provided in Article 301;

(b) import and export restrictions, as provided in Article
603; or

(c) export taxes, as provided in Article 604.

2. Each Party shall seek to ensure that in the application of
any energy regulatory measure, energy regulatory bodies within
its territory avoid disruption of contractual relationships to
the maximum extent practicable, and provide for orderly and
equitable implementation appropriate to such measures.


Article 607: National Security Measures

1. No Party shall maintain or introduce a measure restricting
imports of an energy or basic petrochemical good from, or exports
of an energy or basic petrochemical good to, another Party under
Article XXI of the GATT or under Article 2102 (National
Security), except to the extent necessary to:

(a) supply a military establishment of a Party or enable
fulfillment of a critical defense contract of a Party;

(b) respond to a situation of armed conflict involving the
Party taking the measure;

(c) implement national policies or international agreements
relating to the non-proliferation of nuclear weapons or
other nuclear explosive devices; or

(d) respond to direct threats of disruption in the supply
of nuclear materials for defense purposes.

2. The Parties recognize the provisions of Annex 607.2.


Article 608: Miscellaneous Provisions

1. Canada and the United States shall act in accordance with
the terms of Annexes 902.5 and 905.2 of the Canada - United
States Free Trade Agreement.

2. The Parties agree to allow existing or future incentives for
oil and gas exploration, development and related activities in
order to maintain the reserve base for these energy resources.

3. Canada and the United States intend no inconsistency between
the provisions of this Chapter and the Agreement on an
International Energy Program (IEP). In the event of any
unavoidable inconsistency between the IEP and this Chapter, the
provisions of the IEP shall prevail to the extent of that
inconsistency as between Canada and the United States.


Article 609: Definitions

For purposes of this Chapter:

consumed means transformed so as to qualify under the rules of
origin set out in Chapter Four (Rules of Origin), or actually
consumed;

restriction means any limitation, whether made effective through
quotas, licenses, permits, minimum or maximum price requirements
or any other means;

energy regulatory measure means any measure by federal or sub-
federal entities that directly affects the transportation,
transmission or distribution, purchase or sale, of an energy or
basic petrochemical good;

first hand sale refers to the first commercial transaction
affecting the good in question;

Independent Power Producer (IPP) means a facility that is used
for the generation of electric energy exclusively for sale to an
electric utility for further resale;

investment means investment as defined in Chapter Eleven
(Investment);

total supply means shipments to domestic users and foreign users
from:

(a) domestic production;

(b) domestic inventory; and

(c) other imports, as appropriate; and

total export shipments means the total shipments from total
supply to users located in the territory of the other Party.

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ANNEX 602.3


1. The Mexican State reserves to itself the following strategic
activities and investment in such activities:

(a) exploration and exploitation of crude oil and natural
gas; refining or processing of crude oil and natural
gas; and production of artificial gas, basic
petrochemicals and their feedstocks; and pipelines; and

(b) foreign trade; transportation, storage and
distribution, up to and including first hand sales of
the following goods: crude oil; natural and artificial
gas; goods covered by this Chapter obtained from the
refining or processing of crude oil and natural gas;
and basic petrochemicals.

2. In the event of an inconsistency between Annex 602.3,
paragraphs 1, 5(a) and 6, and another provision of this
Agreement, the provisions of Annex 602.3, paragraphs 1, 5(a) and
6, shall prevail to the extent of that inconsistency.

3. Natural Gas and Petrochemical Feedstock Trade

Where end-users and suppliers of natural gas or basic
petrochemical goods consider that cross-border trade in such
goods may be in their interests, the Parties agree that such
end-users and suppliers, and state enterprises of the Parties as
may be required under their domestic law, shall have the right to
negotiate supply contracts.

The modalities of implementing such arrangements are left to
the end-users, suppliers and state enterprises of the Parties as
may be required under their domestic law and may take the form of
individual contracts between the state enterprise and each of the
other entities. Such contracts may be subject to regulatory
approval.

4. Performance Contracts

The Parties shall allow state enterprises to negotiate
performance clauses in their service contracts.

5. Electricity

(a) In Mexico the supply of electricity as a public service
is a strategic area reserved to the State. Except as
provided in subparagraph (b) below the activities
encompassed by the supply of electricity as a public
service in Mexico include the generation, transmission,
transformation, distribution and sale of electricity.

(b) The opportunities for private investment in Mexico in
electricity generating facilities include:

(i) Production for Own Use

Enterprises of the other Parties may acquire,
establish, and/or operate an electrical generating
facility to meet its own supply needs. Electricity
generated in excess of the enterprise's own supply
requirements must be sold to CFE and CFE shall
purchase such electricity under terms and
conditions agreed to by CFE and the enterprise.

(ii) Co-generation

Enterprises of the other Parties may acquire,
establish, and/or operate co-generation facilities
which generate electricity using heat, steam or
other energy sources associated with an industrial
process. Owners of the industrial facility need
not be the owners of the co-generating facility.
Electricity generated in excess of the
enterprise's own supply requirements must be sold
to CFE and CFE shall purchase such electricity
under terms and conditions agreed to by CFE and
the enterprise.

(iii) Independent Power Production

Enterprises of the other Parties may acquire,
establish, and/or operate electricity generating
facilities for independent power production (IPP)
in Mexico. Electricity generated by IPP facilities
for sale in Mexico shall be sold to CFE and CFE
shall purchase such electricity under terms and
conditions agreed to by CFE and the enterprise.
Where an IPP located in Mexico and an electric
utility of another Party consider that cross-
border trade in electricity may be in their
interest, the Parties agree that these entities
and CFE shall have the right to negotiate the
terms and conditions of power purchase and power
sale contracts. The modalities of implementing
such supply arrangements is left to the end-users,
suppliers and CFE and may take the form of
individual contracts between the state enterprise
and each of the other entities. Such contracts
shall be subject to regulatory approval.

6. Nuclear

The generation of nuclear energy; the exploration,
exploitation and processing of radioactive minerals; the nuclear
fuel cycle; the use and reprocessing of nuclear fuels and the
regulation of their applications for other purposes; the
transportation and storage of nuclear wastes; and the production
of heavy water, are reserved to the Mexican state.

7. Pursuant to Article 1101(3), private investment is not
permitted in reserved activities listed above in paragraphs 1,
5(a) and 6. Chapter Twelve (Cross Border Trade in Services)
shall only apply to activities involving the provision of
services covered in paragraphs 1, 5(a) and 6 when Mexico permits
a contract to be granted in respect of such activities and only
to the extent of that contract.

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ANNEX 603.6



United Mexican States:

1. For only those goods listed below, Mexico may restrict the
granting of import and export licenses for the sole purpose of
reserving foreign trade in these goods to itself.

2707.50 Other aromatic hydrocarbon mixtures of which 65% or
more by volume (including losses) distills at 250 C by
the ASTM D 86 method.

2707.99 Rubber extender oils, solvent naphtha and carbon black
feedstocks only.

2709 Petroleum oils and oils obtained from bituminous
minerals, crude.

2710 aviation gasoline; gasoline and motor fuel blending
stocks (except aviation gasoline) and reformates when
used as motor fuel blending stocks; kerosene; gas oil
and diesel oil; petroleum ether; fuel oil; paraffinic
oils other than for lubricating purposes; pentanes;
carbon black feedstocks; hexanes; heptanes and
naphthas.

2711 Petroleum gases and other gaseous hydrocarbons other
than: ethylene, propylene, butylene and butadiene, in
purities over 50 percent.

2712.90 only paraffin wax containing by weight more than 0.75%
of oil, in bulk (Mexico classifies these goods under HS
2712.90.02) and only when imported to be used for
further refining.

2713.11 Petroleum coke not calcined.

2713.20 Petroleum bitumen (except when used for road surfacing
purposes under HS 2713.20.01).

2713.90 Other residues of petroleum oils obtained from
bituminous materials.

2714 Bitumen and asphalt, natural; bituminous or oil shale
and tar sands, asphaltites and asphaltic rocks (except
when used for road surfacing purposes under HS
2714.90.01).

2901.10 Ethane, butanes, pentanes, hexanes, and heptanes only.

2. Notwithstanding any other provision of this Chapter, the
provisions of Article 605 shall not apply as between the other
Parties and Mexico.


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ANNEX 607.2



1. The provisions of Article 607(1) shall impose no obligations
and confer no rights on Mexico.

2. Nothwithstanding Article 607(1), the provisions of Article
2102 (National Security) shall apply as between the other Parties
and Mexico.